My wife and I stayed at the Floridian. We didn't have much money either, so looking back on it, it might not have been the best decision to stay there. But, it was my first trip to Disney, I knew nothing about Disney at that time. But, I fell in love with Disney on that trip and I think part of the reason was the hotel. The service was ridiculously good. Having said that, I think the idea of renting points and staying at a DVC resort might be the best option. They might be able to get more for their money going that route.
I have never stayed at a moderate resort. Other than the Floridian I have stayed at the Contemporary, and when I went by myself on my last two trips I stayed at All-Star Sports and Pop Century. I have talked to friends that stayed at Port Orleans Riverside and they LOVED it.
It is hard to say though without knowing when they are going etc... If they go in August, for example, you will find the prices are so much cheaper and they may be able to afford a Deluxe Resort.